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The Financial Times Vindicates BoomBustBlog’s Stance On Goldman Sachs – Once Again!
I read this headline from the Financial Times and said to myself,
“Okay Reg, Don’t say ‘I told you so’”. Thus, you won’t hear it from me,
at least not this time. As reported today in the Financial Times: Goldman reveals fresh crisis losses and Goldman’s republished results present a new picture
Goldman Sachs
has revealed details of about $5bn in investment losses suffered during
the crisis for the first time this week, in a move that will deepen
the debate over companies’ financial disclosures. The figures, issued
as part of internal reforms aimed at silencing Goldman’s
critics, show that the bank suffered $13.5bn in losses from “investing
and lending” with its own funds in 2008. But Goldman’s regulatory
filings and its executives’ comments to investors at the time pointed
to about $8.5bn of losses arising from its investments in debt and
equity, as markets were rocked by the turmoil.
Hmmmm! I walked through this in explicit detail in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“
and I did it without being privvy to Goldman’s financial innards. It
was more or less common damn sense. Goldman and its employees do not
walk on water, they do not shit gold, and they cannot perform miracles.
If one takes an objective approach to their equity analysis, and simple
plug the numbers into a spreadsheet (objectively) you would have come up
with the exact same conclusions that I gave my subscribers all of these years. Let’s reminisce, shall we?
So, what is GS if you strip it of its government
protected, name branded hedge fund status. Well, my subscribers already
know. Let’ take a peak into one of their subscription documents (Goldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 Mb
– 131 pages). I believe many with short term memory actually forgot
what got this bank into trouble in the first place, and exactly how it
created the perception that it got out of trouble. The (Off) Balance
Sheet!!!
Contrary to popular belief, it does not appear that Goldman is a
superior risk manager as compared to the rest of the Street. They may
the same mistakes and had to accept the same bailouts. They are
apparently well connected though, because they have one of the riskiest
balance sheet compositions around yet managed to get themselves insured
and protected by the FDIC like a real bank. This bank’s portfolio
looked quite scary at the height of the bubble.
And back to the FT article…
The diverging figures, which do not
change Goldman’s overall results for 2008, are because of the fact
that, like many rivals, the bank did not provide a full breakdown of
profits and losses from activities carried out with its own resources.
Interesting, $5 billion of losses goes unreported, yet there was no
change to the years results. I wish I could lie about $5 billion of
losses that didn’t allegedly exist, make them disappear again after I
come clean, then have the media applaud me for my honesty – all at the
taxpayers expense as I bonus myself into that new 63 foot Azimut. You
know, the one that doesn’t come with the hot international girls with w 6
pack license and bikinis. Hey taxpayers, its your money that bonused
these boats!!! Italy has a pipeline straight to the American taxpayers
wallet through the Goldman bonus pool.
Okay, let’s finish excerpting the aticle…
The revelation of the 2008 loss on its investments supports Goldman’s argument that it did not profit from the crisis.
I, for one, never claimed they profited from the crisis. To the
contrary, I claimed that they lost, big time! This statement seems
awfully conciliatory from the main stream media. I know you guys can’t
(or won’t) get as rough around the edges as I do, but come on fellas.
’nuff brown nosing.
Lynn Turner, a former chief
accountant for the Securities and Exchange Commission, praised
Goldman’s move but called for the SEC to look into the bank’s past
disclosures. “This sets a good example that others should follow,” he
said. “But it does raise the question as to why the management did not
provide this view back then and whether the SEC are going to do
something about this discrepancy.” Mr Turner said SEC rules required
companies to give investors a view, as seen from “the eyes of
management”, of their finances: “For such a discrepancy to have arisen,
management must have lost an eye.”
Praise!!! Lost an eye!!! Hold the hell on here. Goldman outright
lied, and lied big time. It was an obvious lie, and I pointed it out in
full detail to both my blog readers and paid subscribers. As a matter of
fact, the losses are most likely STILL on the balance sheet (or hidden
off) and will surface one way or the the other. Again I reference
subscriber document: Goldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 Mb – 131 pages
As a matter of fact, it looks just as
scary today as it does at the height of the bubble, but since very few
people read balance sheets, no one really notices.
You know what most people don’t realize is that it looks quite scary now as well.
I said it before, and I’ll say it again, I think this is a prime example of the “Devils Chickens Coming Back Home To Roost“. You see, my dear readers and fellow tapayers…
You’ve been had!
You’ve been took!
You’ve been hoodwinked!
Bamboozled,!
Led astray!
Run amok!
This is what they do! Reference We’ve Been Bamboozled by the Banking Industry, but the Chickens Are Coming Home to Roost!
The FT reports that neither the SEC nor GS had a comment. I would
suppose not. I suggest the SEC buy their entire agency a sitewide
subscription to BoomBustBlog, thus in lieu or reading about Goldman’s “Bamboozling”
in the British financial mags, taxpayers could get the skinny directly
from their own government (directly, and in near real time) and may
actually have some faith restored in its ability to safeguard investors
in this period of “the hoodwink“, wink, wink. That is, of course, unless the SEC has been permanently captured, see More on Lehman Brothers Dies While Getting Away with Murder: Introducing Regulatory Capture.
suppose not. I suggest the SEC buy their entire agency a sitewide
subscription to BoomBustBlog, thus in lieu or reading about Goldman’s “Bamboozling”
in the British financial mags, taxpayers could get the skinny directly
from their own government (directly, and in near real time) and may
actually have some faith restored in its ability to safeguard investors
in this period of “the hoodwink“, wink, wink. That is, of course, unless the SEC has been permanently captured, see More on Lehman Brothers Dies While Getting Away with Murder: Introducing Regulatory Capture.
“We have a strong track record as an investor,” he told analysts in December 2008.
With their ears stinging from
accusations that Goldman is “just a giant hedge fund” or, as Rolling
Stone said, a “vampire squid” stretching its tentacles to make money
for itself, an internal committee looking at reforms reshuffled the
bank’s financial reporting.
-worth of losses came from direct purchases of assets. It also
said that it had lost $1.7bn on residential mortgages and $1.4bn on
commercial mortgages – half of which is believed to be related to
Goldman’s investments.
Overall, the old disclosure points
to losses of about $8.5bn in 2008, rather than the $13.5bn revealed
this week. So why the discrepancy?
Goldman declined to
… A new profit-and-loss account for
2008 released this week shows losses of $13.5bn on Goldman’s
“investing and lending” activities.
This material tilting of the risk/reward equation would be obvious to
most and many, if they would look at the true economic numbers and
stop following accounting numbers! Goldman is a very, very well run
company. It is loved by some, reviled by others, but in the end it is
respected for something that it truly does not deserve. That something
is the ability to make an above average return on risk adjusted
capital. Goldman takes gobs of risk! From an economic income
perspective, it is mediocre to average at best. See ” For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks, ”
GS return on equity has declined substantially due to
deleverage and is only marginally higher than its current cost of
capital. With ROE down to c12% from c20% during pre-crisis levels,
there is no way a stock with high beta as GS could justify adequate
returns to cover the
inherent risk. For GS to trade back at 200 it has to increase its
leverage back to pre-crisis levels to assume ROE of 20%. And for that GS
has to either increase its leverage back to 25x. With curbs on banks
leverage this seems highly unlikely. Without any increase in leverage
and ROE, the stock would only marginally cover returns to shareholders
given that ROE is c12%. Even based on consensus estimates the stock
should trade at about where it is trading right now, leaving no upside
potential. Using BoomBustBlog estimates, the valuation drops
considerably since we take into consideration a decrease in trading
revenue or an increase in the cost of funding in combination with a
limitation of leverage due to the impending global regulation coming
down the pike. Using your method, our valuation would drop from where it
is to an even lower point.
Second, it still has a bunch of trash on its balance sheet, see Reggie Middleton vs Goldman Sachs, Round 2. If you look at the period of the most recent credit bubble,
Goldman did everything that the other failed and bailed out banks did:
leveraged up on trash assets, invested in and sold the worthless junk,
and ran to the government for aid and bailouts.
In What Do Goldman Sachs and B.B. King Have in Common? The Thrill is Gone…,, I made the following note:
GS’s considerable leverage provides a means (the lever) of high
returns to shareholders when asset prices are appreciating but the
same becomes a very material economic concern when the asset prices
lose value. With low trading revenues, GS has little cushion to absorb
write-downs on these assets, leading to erosion of equity. As of
March, 2010, the GS’s investments portfolio amounted to $339 billion
(nearly 566% of the tangible equity). Referencing my previous posts, “Can
You Believe There Are Still Analysts Arguing How Undervalued Goldman
Sachs Is? Those July 150 Puts Say Otherwise, Let’s Take a Look” and “When the Patina Fades… The Rise and Fall of Goldman Sachs???“,
we can reminisce over the fact that Goldman BARELY earns its cost of
capital on an economic basis, and that’s before considering the
potential horrors which may (and probably do) lay on the balance sheet
(for more on BS horror, reference Reggie Middleton vs Goldman Sachs, Round 2) .
A Few Questions on Goldman Sachs 3rd Quarter 2010 Results That No One Thought to Ask Wednesday, October 27th, 2010
Recommended reading from Reggie Middleton’s BoomBustBlog in the investment banking space…
- Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?
- A Step by Step Guide to Exactly How Much Derivatives Risk Each of the 5 Big Banks Actually Have, and How It Could All Go Boom!
- JP
Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder
of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can
Be When They Say XYZ Bank Can Never Go Out of Business!!! - Four Facts That BANG JP Morgan That You Just Won’t Hear From The Sell Side!!!
- As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves
- The
Truth Goes Viral, Part 2: Italian Towns Damaged by Derivatives,
Downtown Brooklyn Real Estate, Goldman Sachs, JP Morgan, Europe’s
Overbanked Status, Reggie Middleton, Matt Taibbi, and Simon Johnson –
All in One Video
More on Goldman Sachs
- The BoomBustBlog Review of Goldman Sach’s 2nd Quarter, 2010 Performance: I Told You So!
- On Goldman’s Latest Earnings Results…
- What Do Goldman Sachs and B.B. King Have in Common? The Thrill is Gone…
- A Realistic View of Goldman Sachs and Their Latest Quarterly Results
- The Brown Stinky Stuff is Splattering Off the Fan Blades and Landing on That Shiny New Building on the West Side Highway.
- No One Can Say I Didn’t Warn Them About Goldman Sachs, Several Times…
- Subscribers can find our most recent Full Forensic report on Goldman Sachs here - GS 4Q09 Final Review and Updated Valuation, current as of January 2010, the month I started reiterating my warnings about this company’s drastic overvaluation.
- Reggie Middleton vs Goldman Sachs, Round 2
- Reggie Middleton Personally Congratulates Goldman, but Questions How Much More Can Be Pulled Off
- Get Your Federally Insured Hedge Fund Here, Twice the Price Sale Going on Now!
- Reggie Middleton on Goldman Sachs’ fourth quarter, 2008 results
- Goldman and Morgan losses in the news, about 11 months late
- Blog vs. Broker, whom do you trust!
- Monkey business on Goldman Superheroes
- Reggie Middleton asks, “Do you guys know who you’re messin’ with?”
- Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis
- Reggie Middleton on Goldman Sachs Q3 2008
- § As Reality hits, the Masters of the Universe are starting to look like regular bank employees
- Reggie Middleton’s Goldman Sach’s Stress Test: Breaking Ranks with the Crowd Once Again!
- Who is the Newest Riskiest Bank on the Street?
- advertisements -
I did sell all. Will it ever end guys. How our children will suffer under all this debt, deceit, lying and a mainstream media that only cares about advertisers.
When will this end???
It IS ending. It's not going to be a big pop like an exploding balloon. It'll be more like a rude farty sound when you slowly let the air out of a balloon and squeeze its neck.
When it ends, your kids won't be stuck with the bill. They'll be too busy rebuilding amid the rubble. Hopefully they'll figure out a better way than the last one.
I'm just glad my Daughter developed in interest in the Martial Arts.
Your so rigth reggie, and the media is coming out making it seem that they are noble or something showing this information. They hid this information because if was bad for them, and people invested and made decisions on their fraudulant filings. But don't worry folks, this isn't over by a long shot. The big reason is why come out at all. Yea it could be that they where trying to silence the critics, but so what they never cared about them before. I think it was one of two things, either they got information or read information out in the blogs or media (Most likely you Reggie) that was getting to close to the problem and/or pointing their fingers to the right things to look at and they wanted to get ahead of the aurgument. Or they came out to show that they can seem nobel when they tried to protect the public and govt. from any more expense. And then in the end ask for more money.
Nice one Reggie, love your blog, and it is not only off by 5 billion but that is also off by almost 60 % according to my little $3 calculator here haha.. Thanks for the Great info you provide...
Goldman and its employees do not walk on water, they do not shit gold
Ha, ha, good one! - except that it seems everyone thinks the US government do walk on water & even shit gold. Maybe even turn the water into wine & the one loaf into thousands. The oregano into weed....
Looking at the market in recent weeks you would think that government bureaucrats are indeed Gods?
With mark to magic accounting does it do any good to know any of this? As long as everyone keeps the money flowing wont it resolve itself rather unremarkably in five years? What could be a negative catalyst?
people needing their money back is the catalyst. that happens as people retire in increasing numbers..so in this case..raise the retirement age to 100. it was set at 60 in 1906, because life expetancy was ..62
Kicking ass and taking numbers.
Great stuff as always Reggie. Your work speaks for itself.
The Squid has it's own special ink to conceal it's self.
another thing that makes you go hmmm...
assets in 4q07 $420bn (from derivs = $105bn x 4)
assets in 4q09e $255bn (from derivs = $85bn x 3)
assets estimated down 40% in those two years?
liabilities down how much...difference = actual loss?
damn balance shits...oops sheets
GS and the Wall Street Banksta' Gangsta's are the Aristocracy of the modern age.
Their control of the purse strings of the law, the ink of the papers, and the land and lives of the peasantry means that they may do as they wish.
They may very well end as Louis the XV and XVI did but for now their debauchery is unmatched and they are untouchables.
Mad skills Reggie!
Hat tip, Reggie.
Thanks, Reggie. GS was a hedge fund and always will be, however, the Feds granted them "bank" status so that taxpayer funds could be transferred to them at will so the bonus pool wouldn't shrink. Treasury and Fed largess continue to cosmetically primp the rotting flesh of the TBTF banksters. Sheesh.
Great analysis. Do you ever send your analysis/thoughts to the SEC or FT?
FYI to the SEC, CFTC, and dear readers
A word from Albert Einstein:
...nowhere have we really overcome what Thorstein Veblen called "the predatory phase" of human development. The observable economic facts belong to that phase and even such laws as we can derive from them are not applicable to other phases.
http://www.monthlyreview.org/598einstein.php
[1949]
RM-you're an awesome read.
It's hard for the SEC to act when their keys are stuck together, not to mention the fact that the SEC is filled with legal rather than finance guys, most of which I'm betting cannot balance their own checkbooks. Reggie could walk them through personally step by step and they either wouldn't get it or ignore it.
http://voices.washingtonpost.com/federal-eye/2010/04/new_sec_porn_bust_d...
These guys are jerkin' it harder than I did in college.
The thing you have to realize is that Goldman and the other banks are just in the middle of the chain and the REAL power in the world established over millenia see no harm in them having a little fun in the administration of their world. As in most enterprises, the powers at the top do not really get involved in the details and do not really care much "how" something is done, they just care that it gets done.
Do they care about thousands dying of starvation every day? No. How can they when they have a planet to run and the people dying fall into the noise level of society. THINK about what you would really care about if you were running the entire world and felt the responsibility for the entire world. Goldman and the rest of the banks, the churches, wars, universities, technology are all just means and mechanisms to a goal ... I am not sure they even know what the ultimate goal is, how can they unless they have access to see through time (maybe?) ... and what good is an ultimate goal for a linear society such as modern day man?
Rule #1 of those is power = stay in power
Rule #2 of those in power = have a plan and work toward it
Leave the details to the underlings to sort out.
So, while I have done my share of whining about Goldman and the other mechanisms, a sign of maturity is to be cynical and understand that things can be unfair or wrong (from a particular perspective) ... and we still do what needs to get done. We, as they, have a choice to do it by our own moral/ethical code. Violence may be the last act of the incompetent ... or if your moral code says otherwise, it might just be expedient, because you do not have the time or dependable resources to do otherwise.
Today's human society appears to have been created by design, most likely human design. It is not random or at least completely random.
Actually the real priorities are the following:
Priority 1: get re-elected
Priority 2: get elected
As formulated by Tony Blair's advisors.
Bartanist,
it's a rational call to 'pick your battles', and/or 'know thy enemy', so i laud your general point, which i read as "deal with it folks, it's life... and we're not gonna change it much"
but i've recently concluded that there are (and always will be) immoral wolves that will gladly eat the 'moral' sheep(le) who sadly believe they are living in a rule-of-law-based context.
our policing and regulatory forces are neutered at *every* level by 'special-cases' that hinder their ability to manage common-sense enforcement without fear of reprisal, law-suits, politically correct media harrassment, etc.
the wolves have won. we're now so afraid to make a mistake in enforcement, that we choose not to enforce at all (it's easier), and the wolves know this, and are feasting.
until it hurts them to eat, the wolves will eat. and eat more.
"Violence may be the last act of the incompetent ..."
i respectfully counter that violence may well turn out to be the correct choice of those that survive at all. insure your heritage/lineage - and hope you never have to collect on the policy. for the sake of you and yours, be sure you don't 'taste good' to the wolves.
Reggie:
Great analysis...but the real problem is that fraud is patted on the back and recieved by the market with the proverbial yawn.
A similar yawn to the mortgage mess that banks are in.....
A similar yawn to Bernanke and POMO's sending trading frees to the PD's everyday.....
A similar yawn to the joke that our "free" stockmarket has become
Sure thing.
Look,you could take all the Goldman management, and toss them into a cubic box 67 feet in each direction. For what that's worth at current Goldman stock prices, you could buy some farmland in the United States. Plus, you could buy 1/5 of Exxon Mobil, plus have $1 billion of walking-around money. Or you could have a big cube of GS management. Which would you take? Which is going to produce more value?
Is this box air tight?
Send them all to the new Devil's Island:
Detroit
Great write-up, Reggie.
Your analysis proves beyond reasonable doubt that the entire response is orchestrated, and there is method. It should also invite those with common sense to see how much of the crisis itself is orchestrated before the fact, and scripted.
This is outright robbery and abuse of the US taxpayer for personal (you bet your ass bonuses are personal) gain.
No accountability, no enforcement, no regulation, no laws applicable, but yet record bonuses and no shame. Deplorable.
Goldman Sachs employees and clients rot in hell - you deserve everything bad that happens to you - you are un-American and unwelcome.
GET THE FUCK OUT!
Ease down. There is no US tax payer involved.
OK AA (and you're anon, why?)
hmm... so criminal lies against non-taxpayers are OK... good to know, i guess. wasn't sure there for a minute.
you either work for the SEC (Reggie has embarassed you), or GS (Reggie's hit a nerve with the truth).
either way, your response indicates everything wrong with this business.
no contrary proof, no corrections of detail, simply "well, it didn't hurt no taxpayers, so WTF is wrong with y'all?"
bah.
You must have served in the US Air Force to be that off target.
On the very contrary, the only way US citizens seem to relate to the situation is because their tax payer money is told to be committed.
Dont project on me the behaviour of US citizens.
Some people might disagree with US monetary policies even though US tax payer money is not involved. That is not the case of US citizens who constantly need to pretend US tax money is involved to feel concerned.
By correcting their misunderstanding, I bring them peace of mind.
So chill down, US citizens, no US tax money is involved. No reason to feel concerned.
i completely missed the </sarcasm> in the your original (minimal) post.
read as intended, that was quite funny/spot-on.
and the sheeple amble on, eh?
FWIW, i would be more critical of the actual targeting process (what they choose to shoot at), vs the hit rate itself. regardless the general's intent, i would NOT want that USAF red dot on my forehead.
cheers
People living close to you would not either.
TBTF is dripping with taxpayer treasure.
Get a clue before you post.
Isn't fascism great?!
Best revenge: sell all stocks